Elon Musk’s Tesla Shares Could Be Used By Court To Force Twitter Deal
It seems increasingly likely that a judge in Delaware will order Elon Musk to go ahead with his $44 billion deal to buy Twitter — and if she does and Musk opposes, experts say the court has more power to rule out a deal than many investors realize.
Legal pundits say Delaware Court of Chancery judge Kathaleen McCormick appeared this week to indicate she is inclined to rule against Musk and enforce “specific feats” — legally because he requires him to fulfill his original agreement to buy the site for $54.20 per share rather than just one well and walk away.
Analysts weighing how Musk would respond to a specific execution order say one possibility is that he may refuse to comply — a risky, irrational and likely disastrous move that could nevertheless be conceivable for the famously erratic mogul.
“He has no chance of winning that battle,” Robert Miller, president of corporate finance and law at the University of Iowa, told The Post. “But Elon has blown the SEC over. Why not the Chancellery?”
The answer, according to Miller and others, is that the Delaware court ruling could pose a much greater threat to Musk’s empire. The SEC fined Musk and Tesla $40 million for a misleading tweet about taking Tesla private in 2018. However, a forced purchase of Twitter would be worth 1,000 times that amount, which would deal a major blow to the company. finances of the world’s richest person.
“Elon blew up the SEC,” said Robert Miller. “Why not the Court of Chancery?” AFP via Getty Images
If Musk refuses to comply with a specific executive order, Delaware has the authority to appoint an official called a “special master” who would have the authority to legally “be Elon Musk” and close the deal, said Miller.
The easiest way for the special master to execute the deal would be to seize a huge chunk of Musk’s Tesla stock and sell them — a drastic move that Delaware “has 100% jurisdiction” to do. — in part because Tesla is currently incorporated into Delaware, said investment researcher and former corporate attorney JB Heaton.
“Obviously, since Tesla is a very liquid, highly traded company, you can probably get that done in a week,” Heaton said of the sale of Musk’s Tesla stock in Delaware.
Twitter’s lawsuit against Elon Musk will go to trial in the Delaware Court of Chancery in October. Bloomberg via Getty Images
Musk owns a total of about 163 million Tesla shares, according to the most recently available Securities and Exchange Commission filings. Musk has already taken out loans for 88 million of those shares, leaving 75 million shares to sell, according to analysts who have studied the financial records of the world’s richest man.
The 75 million shares available are worth about $55 billion based on Tesla’s current share price. That’s far more than the $23.5 billion in cash Musk needs to close the Twitter deal, as the rest of the $44 billion would be covered by co-investors and funding from several banks led by Morgan Stanley. .
However, the stock sale would significantly shrink Musk’s roughly 17% stake in the electric-car maker, leaving the mogul with less control over his flagship company and potentially plunging his shares.
A Delaware-appointed “special master” could seize some of Elon Musk’s Tesla shares. REUTERS
A more likely special performance scenario, according to Miller and Heaton, is that Musk realizes the potentially dire consequences of the special master arrangement and chooses to carry out the order. In that case, Musk could raise the $23.5 billion by borrowing even more against his interests in Tesla or SpaceX, rather than selling stock.
However, Musk could struggle to find lenders because he has already borrowed more than half of his Tesla stock and publicly destroyed the investment that would fund the loans, according to a hedge fund manager who closely monitors Musk’s finances.
Rising interest rates and an economic slowdown are also making it harder to access loans across the board, the hedge fund manager said.
Elon Musk owns a total of about 163 million Tesla shares.Getty Images
Twitter will see its day in court against Musk in October after McCormick granted the company’s request for an expedited trial on Tuesday.
Chancellor Kathaleen McCormick has granted Twitter’s request for an expedited process. Delaware Court of Chancery
“The longer the merger transaction remains in limbo, the greater the cloud of uncertainty surrounding the company and the greater the risk of irreparable harm to sellers and to the target itself,” McCormick said at Tuesday’s hearing — comments that some analysts have taken as a sign. they considered tending towards specific achievements.
“She hasn’t even seen any evidence and she’s already using words like ‘irreparable damage’ — in fact, she’s triggering words for specific performance,” Heaton said.
Still, the injunction should survive appeals to the Delaware Supreme Court and possibly the US Supreme Court — a process likely to be completed by the end of the year. Musk could also theoretically still beat Twitter’s lawsuit, pay a paltry $1 billion breakup fee or negotiate a settlement.
Twitter shares traded just below $40 on Thursday — an indication that Wall Street remains skeptical Musk will eventually be forced to buy the site for $54.20 a share, although there is broad consensus among analysts that Twitter has a strong case.